Medtech M&A report: Quality beats quantity in 2012, with more activity ahead

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The medical device sector posted some strong merger & acquisition figures in 2012, and the year ahead is looking bright as well, according to a report from analysts at PricewaterhouseCoopers.

Although deal quantity dropped slightly year-over-year, the value of the medtech M&A market gained significantly, driven primarily by the $21.3 billion Johnson & Johnson (NYSE:JNJ) buyout of Synthes, which closed in July 2012.

The total number of deals dropped from 52 in 2011 to 50 in 2012, but deal value increased from $24.6 billion to $36.4 billion, according to the report. With healthcare reforms causing industry-wide shifts in strategy, analysts expect M&A activity to increase further in 2013.

"Despite a slowdown during the fourth quarter, the medical device segment saw the greatest gains during 2012 in terms of deal value," the analysts reported. "In the medical device sector, as companies have sought to unlock the value of non-core businesses and assets, others have sought to achieve growth by entering new markets and diversifying their product offerings."

Last year was a tough one for the lifesciences sector and deals withered slightly from Q3 to Q4 amid concerns in the U.S. and abroad.

"Domestically, uncertainty related to the presidential election and the potential impact of the “fiscal cliff” hindered transactions during 2012," according to the report. "Globally, the Eurozone debt crisis, a stalled global economic recovery, persistent weakness in the labor markets, disappointing economic growth in the BRIC nations (Brazil, Russia, India, and China) during the first half of 2012, and ongoing instability in the Middle East cooled M&A activity."

Nevertheless, things are looking good for 2013 and PwC analysts predicted an uptick in deals.

"With the implementation of the Patient Protection & Affordable Care Act in the United States and its sweeping reforms reshaping business models, we expect M&A activity to increase across segments in 2013," they noted.

One place to look for such activity may be in the so-called "frontier market" countries: Mexico, Turkey, Indonesia, and African countries.

PwC analysts expect that more buyers will turn to the frontier market as assets become scarce in the ever-popular BRIC nations: Brazil, Russia, India, and China.

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